When the Format Matters: Information Processing Costs, Investor Engagement, and Firm Financial Constraints

42 Pages Posted: 18 Apr 2024

See all articles by Felipe Cabezon

Felipe Cabezon

Virginia Tech - Pamplin College of Business

Date Written: March 29, 2024

Abstract

This paper studies the role of standardized disclosure formats in easing firms' financial constraints and investment policies. Based on a regulation that integrated the distinct disclosure system of smaller firms with the overarching standard disclosure framework, this paper runs a difference-in-difference analysis that isolates the impact of a change in disclosure format while holding the informational content constant. Firms transitioning to the standardized format not only receive greater investor attention but also secure enhanced equity funding and invest more. The findings are consistent with the existence of information processing costs that hinder investors from gathering all the available financial information.

Keywords: Information processing costs, financial constraints, external finance, equity issuance, investment

JEL Classification: G320, G380

Suggested Citation

Cabezon, Felipe, When the Format Matters: Information Processing Costs, Investor Engagement, and Firm Financial Constraints (March 29, 2024). Available at SSRN: https://ssrn.com/abstract=4778266 or http://dx.doi.org/10.2139/ssrn.4778266

Felipe Cabezon (Contact Author)

Virginia Tech - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

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